Gold experiences the largest weekly decline in 43 years! This bank steps in to make adjustments!

Source: Securities Times Network Author: Lin Yu

Gold investment risk intensifies—banks take action!

On March 21, China Merchants Bank released a notice adjusting the bid-ask spreads for its gold account business. The notice says that due to heightened volatility in the gold market recently, in order to mitigate related risks, effective March 23, the bank will adjust the buy and sell transaction bid-ask spreads at the same quoted time point for its gold account business to 5 yuan/gram. Of this, the bid-ask spread in the buying direction will increase by 2 yuan/gram, while the spread in the selling direction will remain unchanged. The adjusted spread plan is expected to run until June 27. And starting from the market open on June 29, for China Merchants Bank’s gold account business, the bid-ask spread for both the buy and sell sides at the same quoted time point will be adjusted to 2.5 yuan/gram, respectively.

As of March 22 Beijing time, the London spot gold price fell below the $4,500 per ounce mark, closing at $4,491.67 per ounce. The week’s decline was as much as 10.49%. The data show that this is the largest weekly drop since March 1983.

A reporter from China Securities Journal contacted China Merchants Bank by phone as an investor. The customer service replied that the adjustment would indeed begin after 9:10 a.m. on March 23. The adjustment is due to a明显 increase in gold price volatility in recent days, and the bank’s comprehensive need to adapt to market changes, as well as to ensure trades and cover operating costs.

What is the bid-ask spread? “When investors buy and accumulate gold with a bank, they typically need to look at two prices: the buy price (the price at which you buy from the bank) and the sell price (the price at which you sell to the bank). The difference between the two prices is the ‘bid-ask spread.’” An industry insider explained.

More specifically: if the price shown on China Merchants Bank’s gold account business interface is 1,000 yuan/gram, before the rule adjustment, at the same time point, the buy price for a customer would be 1,000 yuan/gram, and the sell price would be 997 yuan/gram, for a (buy-sell transaction) bid-ask spread of 3 yuan/gram. After the rule adjustment, at the same time point, the customer’s buy price would be 1,002 yuan/gram, and the sell price would remain 997 yuan/gram, making the (buy-sell transaction) bid-ask spread 5 yuan/gram.

Xue Hongyan, a researcher with special appointment at Gansu? Bank, said that China Merchants Bank’s adjustment to the bid-ask spread for accumulated gold is a reconstruction of transaction costs and risk management in a context of increased volatility in the gold price. It expands the spread to 5 yuan/gram, raises the friction cost per single buy-sell, and also significantly increases the profit threshold for short-term band trading.

“By increasing trading resistance, this measure guides investors away from ‘quick in and quick out’ toward long-term holding, helping to smooth out market speculative enthusiasm. It also allows the bank to lock in more certain intermediary business income during turbulent market conditions, to cover liquidity and hedging costs.” Xue Hongyan said.

This is not the first bank in the recent period to change the trading rules for accumulated gold.

On March 3, China Construction Bank announced that, to further improve risk prevention and control, the bank would implement dynamic transaction limit management for Jianhang Gold (including YiCun Gold).

At the end of February, Zhejiang? Bank announced that if the gold market experiences abnormal large price swings, market liquidity dries up, and the ability to take over trades declines significantly, the bank may temporarily close the accumulated wealth gold business.

In January, Industrial and Commercial Bank of China announced that starting from February 7, on weekends and on non-trading days such as statutory holidays—when these are not trading days of the Shanghai Gold Exchange—the bank would implement limit management for the Yili gold accumulated business. Limit types include caps on accumulated/ redeemed amounts for all customers or for a single customer per day, as well as caps on total accumulated or redeemed amounts per single transaction, etc., and the limits would be set dynamically. Note that withdrawing/gathering gold is not affected.

Industry insiders pointed out that the above adjustments send investors a clear signal: the attribute of accumulated gold as a tool for short-term trading is weakening.

Dong Ximiao, Chief Economist of Zhienlian, and Deputy Director of the Shanghai Finance and Development Laboratory, told a reporter from China Securities Journal that such measures are intended to address potential systemic risks brought about by extreme volatility in gold prices. The bank’s approach to risk control is shifting from “static defense” to “dynamic game-playing,” and it also reflects that the positioning of accumulated gold products is undergoing recalibration—from the past “savings substitute” with a low entry threshold, gradually toward a “financial investment product” that needs to match corresponding risk tolerance.

“If you still choose to participate, you must face the erosion of returns by transaction costs, and the focus should return to the long-term logic of asset allocation or physically accumulating gold.” Xue Hongyan said.

(Editor: Wen Jing)

Keywords:

                                                            Gold
                                                            Gold price